<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The economic and financial crisis of the year 2008 highlighted the need for banking sector regulation via the creation of the banking union. The Bank Recovery and Resolution Directive (BRRD) represents an important milestone in the formation of the banking union. It is supposed inter alia to replace the existing practice of bailing out failing banks by the opposite principle of bail-in, which makes the bank recapitalized from the internal resources at the detriment of investors and creditors. However, the Italian solution of handling its failing banks took advantage of existing loopholes in the new regulatory system. Eventually, it went against the spirit of the new rules by deploying taxpayers’ money to deal with the banks’ failure. This article evaluates the Italian approach and contemplates the adequacy of the new rules-based system by comparing its potentially beneficial room for flexibility with alleged malfunction and unreliability. Finally, it discusses the potential impact of the Italian approach on the further process of completing the banking union, in particular the establishment of its last pillar, the common deposit guarantee scheme.</p></abstract>

The economic and financial crisis of the year 2008 highlighted the need for banking sector regulation via the creation of the banking union. The Bank Recovery and Resolution Directive (BRRD) represents an important milestone in the formation of the banking union. It is supposed inter alia to replace the existing practice of bailing out failing banks by the opposite principle of bail-in, which makes the bank recapitalized from the internal resources at the detriment of investors and creditors. However, the Italian solution of handling its failing banks took advantage of existing loopholes in the new regulatory system. Eventually, it went against the spirit of the new rules by deploying taxpayers’ money to deal with the banks’ failure. This article evaluates the Italian approach and contemplates the adequacy of the new rules-based system by comparing its potentially beneficial room for flexibility with alleged malfunction and unreliability. Finally, it discusses the potential impact of the Italian approach on the further process of completing the banking union, in particular the establishment of its last pillar, the common deposit guarantee scheme.

Italian bank crisis: flexible application of BRRD rules, or a bailout in disguise?

Department of World Economy, Faculty of International Relations

Review of Economic Perspectives

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The economic and financial crisis of the year 2008 highlighted the need for banking sector regulation via the creation of the banking union. The Bank Recovery...

Italian bank crisis: flexible application of BRRD rules, or a bailout in disguise?

Published Online: Jun 22, 2020

Page range: 109 - 135

Received: Nov 26, 2019

Accepted: Apr 09, 2020

DOI: https://doi.org/10.2478/revecp-2020-0006

Keywords
banking union, banking supervision, BRRD, bail-in, bailout, precautionary recapitalisation, non-performing loans, Italian banking sector

© 2020 Jan Famfollet et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Italian bank crisis: flexible application of BRRD rules, or a bailout in disguise?

Published Online: Jun 22, 2020

Page range: 109 - 135

Received: Nov 26, 2019

Accepted: Apr 09, 2020

DOI: https://doi.org/10.2478/revecp-2020-0006

Keywordsbanking union, banking supervision, BRRD, bail-in, bailout, precautionary recapitalisation, non-performing loans, Italian banking sector

© 2020 Jan Famfollet et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
banking union, banking supervision, BRRD, bail-in, bailout, precautionary recapitalisation, non-performing loans, Italian banking sector